Year 0 Year 1 Year 2 Year 3 Year 4 Cashflow for S -100 40 50...
| Year 0 | Year 1 | Year 2 | Year 3 | Year 4 | |
| Cashflow for S | -100 | 40 | 50 | 30 | 30 |
| Cashflow for L | -100 | 10 | 10 | 50 | 90 |
| WACC | NPV(S) | NPV(L) |
| 5% | ||
| 10% | ||
| 15% | ||
| 20% | ||
| 25% |
Which of the following statements is correct? (Hint: complete the NPV profile)
a. The crossover rate should be larger that 20%
b. The crossover rate should be smaller that 5%
c. The crossover rate should be between 5% and 10%
d. If the WACC is smaller than the crossover rate, you will choose project S using the NPV method
e. If the WACC is larger than the crossover rate, a conflict arises between the NPV and the IRR methods
Homework Answers
| WACC | NPV(S) | NPV(L) |
| 5% | 34.0429142 | 35.829207 |
| 10% | 20.7157981 | 16.3923229 |
| 15% | 9.4678764 | 0.59069257 |
| 20% | -0.11574074 | -12.3842593 |
| 25% | -8.352 | -23.136 |
c. The crossover rate should be between 5% and 10%
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Second Blank: IRR, MIRR, required rate of return
Third Blank: IRR, MIRR, required rate of return
Fourth Blank: IRR method, NPV method
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Dropdown options 3rd blank: (NPV method, IRR method)
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A project's NPV profile graph intersects the Y-axis at 0% cost of capital and intersects the...
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HW help please with explanations
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First Blank: always, sometimes, never
Second Blank: IRR, MIRR, required rate of return
Third Blank: IRR, MIRR, required rate of return
Fourth Blank: IRR method, NPV method
6. Understanding the NPV profile If projects are mutually exclusive, only one project can be chosen. The internal rate of return (IRR) and the net present value (NPV) methods will not always choose the same project. If the crossover rate on the NPV profile is below the horizontal axis, the methods will agree....
Dropdown options first 2 blanks: (internal rate of return IRR,
required rate of return, modified internal rate of return MIRR)
Dropdown options 3rd blank: (NPV method, IRR method)
If projects are mutually exclusive, only one project can be chosen. The internal rate of return (IRR) and the net present value (NPV) methods will not always choose the same project. If the crossover rate on the NPV profile is below the horizontal axis, the methods will agree. always Projects Y and...
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